About Revenue-Sharing Investments

Revenue-sharing Investment, often referred to as royalty investing, project financing, or advance revenue purchases, has long been a staple of investment in oil and gas development, movie production and numerous other industries. The primary benefit of a revenue-sharing investment structure is its focus on shared success. Consequently, management and investors are fully aligned toward generation of sustainable revenue.

Secondly, as investors are remunerated from topline revenue rather than bottom-line profits, there is no need for investors to assume control or manage the company. Investors are repaid incrementally as the company generates sales. Entrepreneurs benefit from a flexible payment structure while investors enjoy attractive returns.

If growth is slower than expected, or there is an unanticipated downturn in sales, revenue-sharing investment payments decrease accordingly. If revenue is greater than expected, the investment is paid off more quickly. Additionally, returns on revenue-sharing investments may be capped at a negotiated amount.

The table below details some of the key differences between revenue-sharing investment and other, more traditional sources of capital.

Revenue-sharing

Equity Investors (Angels, VC)

Debt Financing

Venture Debt

Fixed Payments

No

No

Yes

Yes

Restrictive Covenants

No

No

Yes

Yes

Personal Guarantees

No

No

Yes

Yes

Collateralization

No

No

Yes

Yes

Early Stage Valuation

No

Yes

No

Potentially

Substantial Dilution

No

Yes

No

Potentially

Diminished Control

No

Potentially

Potentially

Potentially

IPO/Sale Required for a Return

No

Yes

No

Yes

High Cost / Complexity

No

Yes

Yes

Yes

For investors, a revenue-sharing investment structure is inherently less complicated than equity investment funds. With a narrower focus – on revenue growth instead of future acquisition value – understanding the metrics for success and evaluation of investment candidates are made simpler.

Additionally, the range of potential investments is wider. There are many companies that are not candidates for IPO or strategic acquisition yet generate substantial profits and cash flow.

For these reasons, a revenue-sharing structure generally leads to simpler, more focused, and potentially higher-value investments in dynamic growth companies.